Spitfire Company was incorporated on January 2, 2011, but was unable to begin manufacturing activities until July 1, 2011, because new factory facilities were not completed until that date.
The Land and Building account reported the following items during 2011.
January 31 Land and building $162,500
February 28 Cost of removal of building 9,950
May 1 Partial payment of new construction 61,100
May 1 Legal fees paid 4,360
June 1 Second payment on new construction 41,700
June 1 Insurance premium 2,136
June 1 Special tax assessment 4,200
June 30 General expenses 41,800
July 1 Final payment on new construction 31,500
December 31 Asset write-up 62,300
December 31 Depreciation-2011 at 1% 4,059
December 31, 2011 Account balance $417,487
The following additional information is to be considered.
To acquire land and building the company paid $80,900 cash and 800 shares of its 8% cumulative preferred stock, par value $102 per share. Fair market value of the stock is $122 per share.
Cost of removal of old buildings amounted to $9,950, and the demolition company retained all materials of the building.
Legal fees covered the following.
Cost of organization $700
Examination of title covering purchse of land 1,660
Legal work in connection with construction contract 2,000
$4,360
4. Insurance premium covered the building for a 2-year term beginning May 1, 2011.
5. The special tax assessment covered street improvements that are permanent in nature.
6. General expenses covered the following for the period from January 2, 2011, to June 30, 2011.
President's salary $37,100
Plant superintendent covering supervision of a new building 4,700
7. Because of a general increase in construction costs after entering into the building contract, the board of directors increased the value of the building $62,300, believing that such an increase was justified to reflect the current market at the time the building was completed. Retained earnings was credited for this amount.
8. Estimated life of building - 50 years.
9. Depreciation for 2011 - 1% of asset value (1% of $405,900, or $4,059).
Prepare entries to reflect correct land, building, and depreciation accounts at December 31, 2011.